In this week’s Financial Crime Wave, the U.S. Treasury levies a bevy of updates related to new beneficial ownership obligations for financial institutions, Hezbollah exploits lax controls around free trade zones in the tri-border region to launder illicit funds, a chat with AML visionary Jim Richards about his new vision to radically improve compliance outcomes, and more.

Corporate transparency

FinCEN issues 90-day exceptive relief for renewable, rollover products in interpretative ruling on new beneficial ownership obligations

The U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) Wednesday issued a rare ruling granting exceptive relief for 90 days related to an ambiguous, potentially burdensome piece of new beneficial ownership obligations on legal entity customers that took effect Friday. The short, two-page ruling occurred on the same day FinCEN Director Kenneth Blanco testified before Congress on issues and industry concerns related to the customer due diligence rule, referred to in industry as the beneficial ownership rule. The interpretive ruling targets “certain financial products and services that automatically rollover or renew (i.e., certificate of deposit (CD) or loan accounts) and were established before the Beneficial Ownership Rule’s Applicability Date, May 11, 2018.”

The exception begins, retroactively, on May 11, 2018, and will expire on August 9, 2018. At issue is that when CD’s annually rollover, they technically become a new account, which, in turn, would require the bank to reach out to the company or owner to make sure no beneficial ownership details have changed. If the bank can’t get a verbal, written or email response, the bank would, technically, not be in compliance with the new rules and could face regulatory scrutiny or penalties, (via FinCEN). To read recent ACFCS coverage of the various issues tied to the new rules or FAQs, please click here.


The courage to change: A chat about what can change, and what needs to change, in financial crime compliance to improve outcomes with former Wells Fargo top AML officer Jim Richards

The financial crime compliance space is moving into a new era of regulation and compliance that will be driven by new technology. That model needs to come to anti-money laundering, which is widely seen as the arena where the old compliance model is most broken, and where new technology could go the farthest, fastest, to solve everyone’s problems — by both improving outcomes and cutting costs. Executing this transformation will take imagination, vision, wisdom and even courage, which is why one expert is talking to Jim Richards, founder of the new firm, RegTech Consulting. In an interview, Jim used the word “courage” six times.

Richards chatted just days after retiring from his position as the Bank Secrecy Act Officer and Global Head of Financial Crimes Risk management at Wells Fargo, a job he held for more than twelve years. Jim says that the heart of this problem is that incentives are misaligned, which means resources are too. He thinks we’ve built a regulatory system that does not reward effectiveness but instead prizes compliance “hygiene.” The theory of the system, of course, is that banks’ careful compliance with the AML regulations should lead to high levels of effectiveness in helping law enforcement stop financial crime. Possibly, in an earlier era, it did. Today, though, there is a massive mismatch between the compliance activities required by our egulations and the desired outcomes, (via JS Barefoot).

Terror finance

Hezbollah laundering illicit funds in South American Tri-Border region as free-trade zone becomes a ‘shopping mall’ of illicit goods, arms: report

Hezbollah, the Iran-backed Lebanese militia designated as a terror group by the U.S., is tapping a money-laundering ministate in Latin America that poses an escalating risk to U.S. national security, according to a report published Tuesday. The illicit activities in the so-called tri-border region linking Brazil, Argentina and Paraguay have long been a source of concern for U.S. security officials: After the Sept. 11, 2001, attacks, it became a surveillance target as a haven for terrorists in the Western Hemisphere.

But now Venezuela’s political crisis and Argentina’s inflation, together with entrenched corruption and lax law enforcement, are helping fuel an illicit economy estimated to be worth $43 billion a year, far surpassing Paraguay’s entire gross domestic product, according to the report. The report was prepared by political risk consultancy Asymmetrica, funded and jointly published by the Washington-based nonprofit Counter Extremism Project. The ease of laundering ill-gotten proceeds and the economy of black market cigarettes, narco-trafficking, human trafficking and illegal arms sales have attracted criminal organizations from around the globe, (via the WSJ).


U.S. securities regulator getting tough on penny stock fraudsters, hits AMLCO with hefty individual penalty

SEC charges brokerage firms and an AML officer with compliance violations, with $1 million penalty against firm, $15,000 penalty against compliance chief, (via the SEC).


Turkish banking official who helped Iran launder billions, evade sanctions sentenced to nearly three years in prison

A Turkish banker who was convicted of taking part in a billion-dollar conspiracy to violate United States sanctions on Iran was sentenced to 32 months in prison on Wednesday in Manhattan, a far shorter term than prosecutors had sought. The high-profile federal trial of the banker, Mehmet Hakan Atilla, depicted high-level corruption in Turkey, riveted the Turkish public and strained that country’s relations with the United States.

Mr. Atilla, 47, was the deputy general manager for international banking at Halkbank, a Turkish state bank that American prosecutors alleged was at the center of the broad sanctions-evasion scheme. The prosecutors sought a sentence of about 20 years, arguing that Mr. Atilla was a sanctions expert who had helped design and carry out the scheme and conceal it from American officials. (via the NY Times).

Should the U.S. not sanction Iran?

Avoiding the Iran sanctions quagmire: Why the US should not repeat sanctioning Iran, according to one opinion, citing research that states harsh economic sanctions only work in a third of the cases, adding that the more draconian the designations, the faster the returns diminish, (via Business

Money laundering

Is HSBC the ‘king’ of dirty banks, where criminals go to move illicit funds around the globe, proving big banks are impossible to regulate?

One news program report accuses HSBC of being the bank of choice for a wide of array of criminal and corrupt groups, noting the global institution has been part of some of the largest financial crime and compliance scandals of our time, in some cases resulting in record penalties. But the story fails to also detail HSBC’s moves to change that perception, boosting spending on compliance to strengthen technology, programs and staff expertise at all levels, including by snapping up some of the biggest names and brightest minds in federal investigations and enforcement. The report states: DRUG cartels, mafia, celebrities and the European aristocracy: when it comes to laundering “dirty money” world giant HSBC is king and proof it may actually be impossible to regulate banks.

An ABC-TV Four Corners program about HSBC — the Hong Kong and Shanghai’s Banking Corporation’s reveals the scope of the global financial institution’s scandal-ridden operations. The French-TV made “Banksters” claims HSBC was the go-to bank for “a raft of illegal activities, from money laundering for the mafia, to enabling tax evasion and currency manipulation”. The program screened on Monday night, following recent bombshell revelations in Australia’s banking industry at the Haynes Royal Commission into misconduct in the banking, superannuation and financial services industries. But behind the corporate gloss, it has been at the centre of several of the biggest financial scandals uncovered this century, (via

Risk management

A look at the top five regulatory concerns currently facing financial institutions, including AML, cyber risks

Financial institutions are subject to an ever-growing set of regulations, including in the areas of keeping criminal money launders and hackers out, putting immense pressure on staff to know and comply with each requirement. Non-compliance is clearly not an option, with record penalties in the billions of dollars – that’s for one institution – testifying to the fruits of failure. Whether it’s debilitating fines or being named and shamed, no company wants to be called out. As such, firms need to understand the biggest regulatory challenges facing the financial sector and take steps to address them. Here are some examples:

  • The broad scope of regulation: First and foremost, firms must recognize the sheer volume and breadth of regulation in existence. There are currently more than 750 global regulatory bodies and governing businesses, which means financial organizations are under the microscope; no company can escape compliance standards.
  • Knowing the customer: The financial sector must respond to increasing concerns about money laundering and terrorist financing. Even if a bank launders money unknowingly, it will still face huge repercussions from regulators. As a result, know your customer processes, which see businesses carrying out appropriate background checks for all clients, have become a priority for the industry. However, this puts huge pressure on the staff processing this information manually. Errors can occur, and information risks being mismanaged unless employees receive the appropriate training and support. As such, it’s vital that staff are given the right tools to record client information accurately, (via World Finance).

Key lessons to create large-scale compliance programs that satisfy global best practices and regional regulatory scrutiny

The TMF Group analyzes how in‑house general counsels can help Asia-Pacific‑based organizations, with lessons for large companies overall, navigate an increasingly complex regulatory landscape by creating a global subsidiary compliance strategy that also addresses regional needs. Some excerpts:

  • Dealing with complexity by bolstering transparency, a broader acknowledgement of a global financial crime compliance trend.
  • Creating a global compliance framework by bringing all jurisdictions up to international best practice standards proactively, not waiting for laws in individual regions to catch up.
  • Making communication a cornerstone of compliance by interweaving global risk, audit and compliance teams at the corporate level and pushing those lessons and processes locally.
  • Consider outsourcing when a local or regional compliance officer is not feasible.
  • Expanding compliance by having both a cultural tone from the top while crafting tangible goals to track progress and prove growth in knowledge and internal, international accumulated acumen, (via


Comparing, contrasting India, China’s strategies to grapple with grand graft

A discussion on why India’s anti-corruption drive may be a better model for others than China’s campaign, with the argument that while both nations have much to teach other developing countries, India’s approach of fighting corruption through redistribution has the advantage of reducing income inequality and boosting the purchasing power of the poor, (via the SCMP).


On deadline day, FFIEC releases new beneficial ownership, CDD exam rules, with key details on verification expectations

The Federal Financial Institutions Examination Council (FFIEC) Friday issued new examination procedures on the final rule, “Customer Due Diligence Requirements for Financial Institutions,” issued by the Financial Crimes Enforcement Network (FinCEN) on May 11, 2016, colloquially called the beneficial ownership rule. The examination procedures apply to banks, savings and loan associations, savings associations, credit unions, and branches, agencies, and representative offices of foreign banks. The new examination procedures replace those in the current “Customer Due Diligence — Overview and Examination Procedures” section of the FFIEC’s Bank Secrecy Act/Anti-Money Laundering Examination Manual. In addition, a new overview and examination procedures were developed for the beneficial ownership requirements for legal entity customers.

FinCEN’s 2016 final rule clarifies customer due diligence requirements and also includes a new requirement for covered financial institutions to identify and verify the identity of beneficial owners of certain legal entity customers. Banks and other covered financial institutions must comply with this rule beginning on May 11, 2018. Some excerpts include:

  • A bank may rely on the information supplied by the individual opening the account on behalf of the legal entity customer regarding the identity of its beneficial owner(s), provided that it has no knowledge of facts that would reasonably call into question the reliability of such information. If a legal entity customer opens multiple accounts a bank may rely on the pre-existing beneficial ownership records it maintains, provided that the bank confirms (verbally or in writing) that such information is up-to-date and accurate at the time each account is opened.11
  • A bank need not establish the accuracy of every element of identifying information obtained, but must verify enough information to form a reasonable belief that it knows the true identity of the beneficial owner(s) of the legal entity customer. The bank’s procedures for verifying the identity of the beneficial owners must describe when it uses documents, non-documentary methods, or a combination of methods, (via the FFIEC).

Virtual currencies

Japan struggling to hamper int’l cryptocurrency money laundering operations as cases reveal billions of illicit yen moved in recent years

Loose overseas regulation of virtual currencies has prompted increased money laundering among some designated Japanese organized crime groups, with the Mainichi Shimbun confirming one case where a total of some 30 billion yen was funneled through various overseas exchanges since 2016. While the Japanese government has recently moved to strengthen measures against money laundering, these are limited to the country’s boundaries. Grasping the situation of money being transferred through anonymous overseas accounts is a problem that cannot be solved without international cooperation.

The Financial Services Agency (FSA), Japan’s financial regulator, now administers the revised Payment Services Act, which was introduced in April 2017. The new law required cryptocurrency exchanges to register with the agency and for users to provide proof of their identity. Following the high-profile Coincheck case, the FSA inspected cryptocurrency exchanges to find many problems in the anti-money laundering measures taken by those domestic firms, issuing orders to improve their business operations. However, even with the revised laws, nothing can be done to regulate the operating practices of exchange firms overseas. Once the money is wired abroad, it is difficult to grasp the whereabouts of the currency from Japan, especially when accounts that do not require official identification to be opened are used, (via the Mainichi).


Hacking group breaches five, possibly more, Mexican banks, moving unknown amount of funds to fake accounts

Five or more Mexican financial groups saw “unauthorized transfers” during the past few days, said Lorenza Martinez, head of Banxico’s payment system, in a statement last week. According to a Reuters report, it’s not clear how much money was transferred, and Martinez wouldn’t specify which institutions were impacted by the incident. “These unauthorized transfers were originated in the system that connects the institutions to the payment system,” Martinez said in a telephone interview. She added that the banks had to move to an alternate – and slower – method of processing payments. The slow interbank transfers since the end of April, as well as the lack of clarity on the part of regulators and authorities, has sparked speculation that Mexico was the latest country to fall victim to the hacks that have been plaguing central banks and financial services firms around the world.

Martinez said the SPEI interbank transfer system wasn’t compromised, but that the software developed by the banking industry and/or third parties to connect to the payment network may have been. SPEI is similar to the SWIFT global messaging system in the U.S. Martinez said the funds were transferred to accounts that seem to be fake. At the same time that the central bank in Mexico is investigating, local banks have also tapped security experts to launch their own inquiries. Reuters noted that at the end of April, the Mexican bank Banorte reported an incident that it said slowed transactions. Meanwhile, Citibanamex, a Mexico unit of Citigroup, said some of its clients saw delays in interbank transfers, but that there weren’t any problems with the payment network, (via Pymnts).

Back to the future or going further into the past?

Are cryptocurrencies pulling the U.S. back to the 1830s, where hard currencies in different states traded at different rates? One Fed official says yes, (via MarketWatch).

United Kingdom

British tax regulator gaining ground in fighting broader financial crimes

A look at the United Kingdom’s Her Majesty’s Revenue and Customs (HMRC), which is best known as Britain’s tax collection agency, but is also in the forefront of the fight against money laundering. However, its efforts are not always amenable to public scrutiny, according to a new report, noting that financial crime enforcement must go hand in hand with government accountability and transparency, (via Rusi).